Carl Icahn has been quietly buying up LightSquared’s debt a rock bottom prices, which would put the activist investor in position to take over the company in the increasingly likely event of bankruptcy. But would there be anything left of LightSquared to salvage?

LightSquared’s value is tied up in its 1.6 GHz satellite spectrum, a 50-MHz-plus block of satellite frequencies it is fighting desperately to repurpose for LTE. If it gets approval from the Federal Communications Commission to launch, that spectrum would be worth billions. Those airwaves would form the foundation of a nationwide LTE network providing heaps of wholesale capacity that LightSquared could sell to other carriers and any other company that wanted to get into the 4G business.

If LightSquared doesn’t get the go-ahead for LTE, though, its licenses wouldn’t become worthless, but it’s value would be greatly reduced. It would only be able to use that spectrum for satellite broadband, which simply can’t deliver the speeds or scale to the volumes of subscribers that an LTE network could. It’s becoming much more likely that a satellite-only future is in LightSquared’s cards.

The government agency overseeing the GPS satellite network is recommending that LightSquared’s plans be stopped, joining the now resounding chorus of government and industry voices that claim LightSquared’s network would cause chaos for millions of GPS receivers, which all depend on the location and timing signals in a nearby band. With that kind of opposition – plus new provisions instituted by Congress that would block LightSquared if any interference concerns remain – the chances of an FCC green light are slim, if not non-existent.

LightSquared is fighting back and has even begun accusing GPS device maker Garmin and Trimble of using their influence with government GPS authorities to rig the evidence against the carrier. Ultimately LightSquared wants more testing, but that testing will take time that the would-be carrier doesn’t have. LightSquared said Wednesday that has enough cash to keep going for several quarters, but after that it’s in trouble. Given the cloud over its network plans, no one would be willing to invest more money in the company.

A lot of options, but few of them good

If LightSquared is forced into bankruptcy or decides to negotiate with its bondholders outside of the courts, that could mean a transfer of control from principle investor Harbinger Capital Partners, run by Philip Falconer, to its debt-holders. If Icahn gains control of the company he will have some interesting choices to make.

Icahn could continue Falcone’s fight against the GPS industry, but that looks to be a losing battle. He could decide to run LightSquared solely as a satellite network, though the money to be made there might not justify the trouble. He could try to sell LightSquared’s L-band licenses, but without a waiver to build LTE he wouldn’t get much money and may not even find bidders. In other words, Icahn might get the company on the cheap, but he wouldn’t be left with much of a business to either revive or dismantle.

How patient is Carl Icahn?

There is one additional option, though, if Icahn has the patience for it. He could sit down with the GPS industry and government agencies to develop a long-term plan to make the L-band palatable for LTE.

LightSquared is right about one thing: The GPS device makers have designed their receivers in such a way that they reach outside of the GPS bands and into LightSquared’s spectrum. That wasn’t a problem when the only thing in those frequencies were low-powered satellite waves. But a high-powered LTE network would overpower those sensitive GPS devices.

Even if LightSquared is in the right, the FCC still can’t just simply give LightSquared the go-ahead when the whole GPS system is at risk. But the government also has every interest in repurposing as much spectrum for mobile broadband as possible. That would mean requiring GPS receiver makers like Garmin and Trimble to put filters in their new devices and develop a plan to either replace or retrofit older devices in the field.

Commercial GPS device makers haven’t shown any willingness to even consider such a plan, but they might be more agreeable if given some breathing room. LightSquared is trying to barrel out its LTE network in a matter of months, while such a large scale replacement program would take years, if not the better part of decade. The question is whether Icahn or any investor would be willing to wait that long before seeing a return.